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Edited Transcript of FALABELLA.SN earnings conference call or presentation 14-Nov-19 3:00pm GMT

Q3 2019 Falabella SA Earnings Call

Santiago Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Falabella SA earnings conference call or presentation Thursday, November 14, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alejandro González Dale

S.A.C.I. Falabella - Corporate CFO

* Andrea Gonzalez Bayon

S.A.C.I. Falabella - Head of IR

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Conference Call Participants

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* Antonio Gonzalez Anaya

Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research

* Antonio Hernández Vélez Leija

Barclays Bank PLC, Research Division - Research Analyst

* Emilio Acevedo Caro

Santander Investment Securities Inc., Research Division - Equity Research Analyst

* Irma Sgarz

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Nicolas Larrain

JP Morgan Chase & Co, Research Division - Research Analyst

* Robert Erick Ford Aguilar

BofA Merrill Lynch, Research Division - MD in Equity Research

* Robert Zhang;DePrince, Race & Zollo, Inc.;Senior Analyst

* Rodrigo Alcantara

UBS Investment Bank, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Falabella conference call. My name is Carmen, and I'll be your conference coordinator for today. (Operator Instructions) In the first part, Ms. Andrea Gonzalez Bayon, Head of Investor Relations, will present a summary of the consolidated results for the third quarter of 2019. Following this, Alejandro Gonzalez, CFO, will comment on the current situation in Chile. And we will then open a question-and-answer session, where Mr. Alejandro Gonzalez and Ms. Andrea Gonzalez Bayon will be available to answer your questions. (Operator Instructions)

Now we will start the conference with Ms. Andrea Gonzalez Bayon.

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [2]

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Good morning, everyone, and welcome to Falabella's Third Quarter 2019 Earnings Call. I'm Andrea Gonzalez Bayon, Head of Investor Relations. Joining me on the call today, we have Alejandro Gonzalez, Falabella's Chief Financial Officer; and Juan Pablo Harrison, Head of Financial Operation as well as the rest of the IR team.

I will begin with brief highlights of the results of the period. Following that, Alejandro will share some comments, and then we will open up for questions. I would also like to remind you that since January 2019, we started accounting for IFRS 16. 2018 figures were not restated, hence they are not comparable. To ease the analysis, we have included pro forma figures for consolidated business and by segment at the end of the presentation.

First, I would like to highlight our main strategic priorities as we continue transforming Falabella into a digital and physical ecosystem, differentiate our value proposition, scale up logistics, financing and payments, data analytics and business intelligence and the technological platform development.

We are pleased with the growth on our online channels, which represent 20% of our department store sales, 3% of home improvements and more than 1% of Tottus. Net merchandise value for the group increased by 41% year-over-year, reaching USD 254 million on the last quarter. On our financial division, online financial product sales reached USD 351 million.

During the quarter, we continued working on the integration of Linio, where net merchandise value grew 63%, driven by growth in Peru, Colombia and Chile would exceed 100% in local currency.

Now please move to Slide 8 to begin with a brief review of our quarterly financial results. Revenue increased by 1.2% to USD 3.1 billion this quarter. Gross profit remained flat, totaling 1.1 billion. Operating income contracted 11.4% year-over-year and 17.5% adjusted for IFRS 16.

Moving on to the next slide, we will take a closer look to operating income. Normalized net income for the quarter reached USD 228 million, but was negatively affected by IAS 29, $25 million at an operating level, which were partially offset by a positive impact of $16 million from IFRS 16. Linio operations, also, [it raises] the result in $16 million.

On the following slide, we present our financial leverage ratio. As of September, our net debt-to-EBITDA was 3.66x, and the duration of our debt 4.8 years.

Now we will listen to Alejandro Gonzalez. And after that, we will open up for questions.

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [3]

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Thank you, Andrea. And thank you, everyone, for joining us today. Last 3.5 weeks have been challenging in Chile, and I would like to take a couple of minutes to share how we have been operating this environment and on the status of our operations. Then, we will open for questions, as Andrea already mentioned.

Social unrest started on October the 18th. And on October the 19th, we decided to close our operations earlier, roughly speaking 4 p.m., given the social situation. During the 20th, all of our operations remained closed. The decision allowed us to protect our customers and employees. We must say that, as of now, we have not had any accident involving neither of both. During this week, our highest priority has been our employees, customers, suppliers and our asset safety. Despite our efforts, we have suffered vandalism on different degrees on several of our stores that we're still in process to -- of quantifying. All of which are reasonably covered by our insurance program, which includes property damage and business interruption. We are already working with our insurance companies and will communicate promptly on expected timing for settlement impacting our financial statements.

Since Monday, the 21st, we started opening our stores, shopping malls and bank branches gradually. Today, we have 58 out of 68 Tottus stores, 45 out of 47 Falabella stores and 85 out of 89 home improvement stores operating. All of our shopping mall, Mallplaza, are operating, and roughly speaking, 95 of our bank branches as well. The stores which are not operational represent, roughly speaking, 4% of our Chile retail revenues on a normalized basis. We will open them gradually in the course of the next month, except for 4 stores, which have been severely damaged and will require at least 1 year to be rebuilt.

Traffic on our stores have been recovering sequentially during the last 2 weeks, though shorter opening hours and consumer uncertainty are still putting a drag on Tottus, Sodimac and Falabella sales. Our mall operations have remained partially closed for 8 days during October, and we have taken the decision to waive the rent on those days to our tenants. Though this might result on modest short-term pressure, we have a clear long-term commitment with them.

The curfew during the first week and restricted public transport services during the evening forced us to temporarily suspend the night shift on our distribution centers, causing delays on our delivery services for 2 weeks. We have proactively contacted our customers who have been extremely supportive of the situation that we're currently getting back on track. We see a very clear opportunity to excel through the online channel, and we're the player -- as we are the player better suited for this.

Collection has been lower with delinquency of less than 30 days, increasing during October. We have observed that the major constraint on payment was related to the impossibility of customers to get to our branches and online payment behavior remained healthy. We're closely monitoring our customer behavior and needs to keep risk levels [among our appetite].

It has been challenging days, but we have reacted rapidly and have been able to increase security measures, increasing flexibility of our stores to adapt to customer needs and safety restrictions and work closely with our employees and suppliers to ease their own challenges. We keep focus on our strategic priorities, building and investing in building the ecosystem, and we are also committed to simplify the lives of Latin Americans by transforming their experiences.

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [4]

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Now we will open up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Emilio Acevedo with Santander.

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Emilio Acevedo Caro, Santander Investment Securities Inc., Research Division - Equity Research Analyst [2]

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I have 2 questions regarding the crisis in Chile. The first one, if you could give me more guidance on the insurance fee structure. In particular, about the clauses -- the clause in profit -- losses of profit. I would like to know more information about who can charge this reimbursement, Falabella Retail, Mallplaza? What will be the structure in that particular clause?

And the second question is regarding the affecting margins. Do you see margin, in fact, affecting by this Chilean crisis? For example, in logistics increasing? Those are my both questions.

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [3]

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Thank you, Emilio, for your question. To basically describe what I can share with you about the insurance program that we have, it's regional program for the group, and the only part of the company that's not included is Mallplaza.

Mallplaza, given the amount of -- and the size of the asset that it has, we have decided to keep separate programs. So Mallplaza is one side and on the other hand, we have all the stores, distribution centers and all the other assets that we have here in Chile.

It does include property damage. Basically, inventory, all the installations that we have in the stores and the fixed asset, the boxes -- the building themselves. Who would have the right to the claim of this? It would be each business. To make it very simple, if there's a building that's part of Falabella store, it would be Falabella department store who would be in charge of the claim. Same thing with the inventory. If it's a building that we are renting, for example, Open Plaza, it would be in the case Open Plaza.

And the business interruption is mainly -- basically dedicated to the business itself. And roughly speaking, this is a standard clause that every insurance program has. And it's basically to cover the gross margin of the store, and it's basically settled -- it's basically defined in the insurance policy.

And your second question's related to the impacts of logistics. It's true that -- I mean the level of operation that we've had, and I mentioned that in the statement that I just read, we have been affected given the hours of operation that we've had. But we still think that traffic has started to -- coming back to normal levels.

So we are expecting that even though we're going to have an impact in the fourth quarter related to the hours of operation, we are confident that we're going to go back to track. And we're -- as I mentioned, we think we're going to be able to be placed in a better than -- better position given the, I would say, the competitive assets that we have when you compare ourself with the peers that we have in the Chilean market.

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [4]

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Maybe worth adding that, last week, we operated normally on our distribution centers, and that allowed us to increase our service levels above 90%. But this is, I would say, an ongoing situation. So this might change in the coming weeks. But as of last week, we have our normalized operation.

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Emilio Acevedo Caro, Santander Investment Securities Inc., Research Division - Equity Research Analyst [5]

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And finally, just to clarify, Mallplaza will -- regarding the first question, Mallplaza will charge to, for example, Falabella Retail in -- during the day that was closed?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [6]

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Mallplaza already publicly said, and this is not related to the insurance program, Mallplaza already publicly said they basically waived the rent for the days that were closed to the tenants. That's the public statement of Mallplaza.

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Operator [7]

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And our next question is from Irma Sgarz with Goldman Sachs.

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Irma Sgarz, Goldman Sachs Group Inc., Research Division - Equity Analyst [8]

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Yes, just moving away a little bit from everything in Chile, and thank you for the details you provided there. When you think about just the investment levels that you have ongoing on the IT side and even in terms of that you're putting behind customer acquisition for your e-commerce and omnichannel platform, how should we think about where you are in that investment cycle? Are you already at a point where you're starting to see dilution and margin improvements? Or is that really something that we should think of really more for, sort of, later into 2020? And obviously, I appreciate that macro does play a role from a point of view of operating leverage.

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [9]

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Thank you, Irma, for your question. If we take all the situation that we're seeing today here in Chile in terms of the cycle of the IT investment, and before that, if you allow me, I'll make a quick comment on the investment program. We're basically defining what the investment plan should look for, for next year. It's budget season for us, so probably, I would love to give you more flavor, but I'm going to be able to do that in -- probably in 1.5, 2 months from now.

But what I can share you -- with you about the cycle is, we're starting to see some traction and I guess the growth that we presented in the third quarter of our online sales and also the performance of Linio is a function of that. But there are still things that we need to put in place. And so we probably are going to see higher impact of that towards 2020. And specifically, I would say, second half of 2020.

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Operator [10]

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And our next question comes from Antonio Hernandez with Barclays.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [11]

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My question is related to the Chile situation that you've been facing there. You mentioned that around 4% of Chilean retail revenues on a normalized level were closed. But you also mentioned that some stores will require at least 1 year to rebuild. Could you mention how much like out of that 4% is going to take over 1 year to rebuild? That's going to be half of that 4% or how much?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [12]

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Thank you, Antonio, for your question. It's a -- it's relatively complicated question given the -- some degrees of uncertainty that we have today. The 4% that we mentioned is basically the stores that are, as I mentioned in the -- in what I said before, those are not operational, I would say. And in that sense, even though -- and we came out with a number of 4% of retail sales. Through this -- there's also an impact of the hours of operation that we're having.

And here's something that I would like you to, please, be very clear of. Safety for our customers and our employees is the #1 priority that we have. So if, by any chance, we see that there's some risk on the operation, even though the store or the shopping mall may be up and running and operational, we probably are not going to work on all the standard hours that we're working today. So that's why it's important.

That's why we came out with the 4% because I know that, that 4% is going to take me longer than expected. And what we're doing today, basically, as Andrea was mentioning, is coming back with operational expertise that we have and the capabilities that we have on the online business. And that's why we think this should be -- there should be a big opportunity moving forward. If we take what happened in other, I would say, kind of crisis that we've had in the past, like the earthquake, usually, having better operational capacity like the logistics capabilities that we have, has proven to be a differentiating factor. So we basically are trying to come back to normal hours, but still there are some situations in which we don't -- we're not open the same hours that we were open before this unrest that came out on October 18.

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [13]

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So adding to Alejandro's explanation. Just take into account that those stores that would be closed for more than 1 year are covered by our insurance for business interruption.

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [14]

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Okay. Okay, okay. And I have a follow-up. Regarding financial services, you've been growing quite solidly there. How sustainable is that growth? Do you have a long-term target?

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [15]

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Could you repeat the question, please?

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Antonio Hernández Vélez Leija, Barclays Bank PLC, Research Division - Research Analyst [16]

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Sure. Regarding financial services, how sustainable is the growth that you've been posting there? And do you have a long-term target of where to grow that division to?

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [17]

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So we're -- after we have integrated Banco Falabella with CMR, we saw basically one of the drivers was really the opportunity for cross-selling, and that should allow us to grow even more strongly in terms of loan book. Having said that, the current situation might put a slight drag on that and timing might be -- to get all of the synergies might be a little bit longer, given that we are really trying to control risk levels.

So it will really depend on how the situation in Chile develops in the coming months. But if we have a more mid-term and long-term view, we are pretty sure that we can even increase the growth of loan book.

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Operator [18]

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Our next question is from Bob Ford with Bank of America.

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Robert Erick Ford Aguilar, BofA Merrill Lynch, Research Division - MD in Equity Research [19]

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Alejandro, I had a question with respect to the impact from bank branch closures on consumer credit arrearages. And at this point, can you tell if the current climate is having any impact on the consumer's disposition to default?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [20]

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It is hard to come up with a conclusion like that, Bob. We have seen -- and we mentioned this and -- what we say before, we have seen some increase in the -- lack of -- I mean the collection has worsened, basically, people that were used to pay on the branches. So -- and -- but when we talk about people that are paying through our platform, either the app on CMR or the website, that's relatively healthy.

So we think so far it's relatively too soon to come up with a conclusion. But we're -- then again, we're pretty confident that the detailed study that we've been following has been very helpful, specifically in a time in which maybe accessing from a physical perspective to a store has been more complicated than before. Opening hours, sometimes in some areas, have not been what they used to be. But as I said before, we collect the most relevant time of the month in which the collection takes place from, for CMR is the fifth of every single month. And what we see from the fifth of November is that people that we're expecting to pay from a digital perspective in the app or the website has been relatively okay. And the -- where it's more related to actually going to a branch and basically pay, that has been increasing.

So we -- it's hard to come out with a conclusion. We should expect to see some deterioration on this. But so far, as I said before, I think this is also an opportunity in which we're going to see more customers probably moving to digital way to relate with the credit card business.

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Robert Erick Ford Aguilar, BofA Merrill Lynch, Research Division - MD in Equity Research [21]

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Makes sense. And then outside the likelihood of wage and workweek adjustments, are there other regulatory risks that you see developing that we should be sensitive to?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [22]

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Let me go through regulatory things that are basically going through today in Chile. And I guess that's a relevant subject so that everyone can hear about this one.

So the social unrest is basically due to an increase in pensions and increase in education, minimum wage. And this is also something related to the maximum amount of hours that you can work on a week.

Any change in terms of pension, which is something that has been on Congress for some time, that, in our way, it would increase the disposable income of people. Same thing as a minimum wage, which just to get that out of the question, it should not have any relevant impact as most of the people are basically on top of the new level that they're trying to set. So based on that, if there's something in which there's an increase in disposable income, it could actually be beneficial for the retail industry as a whole. And therefore, it should have positive impact for Falabella.

The one thing related to the hours, the 48 hours maximum that there's to work, there has been some analysis on the press in the last 2 weeks. We totally don't share that. And if you ask me about the potential impact that it could have to Falabella, we would certainly -- we have the capacity to move the shift, the labor shift that we have, so that we see that it should not have much of a relevant impact on the P&L of -- specifically of the retail businesses that we have.

And I guess that's -- well, there's also something about the tax increase. But that's I guess it's common ground. It's basically to increase the taxes to houses that are over 400 million pesos, give or take that's $600,000. And so that should have a major impact on -- at least on -- the majority of the customers of Falabella would not be affected for that. And there's also an increase in the tax rate for those -- the top-tier that would go from 35% to 40%. And if you see Falabella, given the amount of customers that we have, more than 2.67 million individual accounts with balance, most of our customers are not in that range.

So those are the major regulatory changes that had been under discussion. But to be fair -- transparent with you, the tax reform will certainly, I think, see the light. It has gone through some stages. The others are still under discussion.

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Operator [23]

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Our next question comes from Rodrigo Alcantara with UBS.

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Rodrigo Alcantara, UBS Investment Bank, Research Division - Associate Analyst [24]

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Just -- for Sodimac, I was just wondering if you could explain a bit what's happening there, particularly at the wholesale segment. I understand the macro environment is not helping, right? But when you look at your peers, your same-store sales has been a bit lower. So if you could explain on what's happened there could be helpful.

And the second one, a quick one. If you could also explain what drove the losses that you reported in Mexico?

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [25]

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So Rodrigo, I'll start with your second question. Basically, the losses in Mexico are related with the rollout of our operations there. We are in the process of opening new stores in Sodimac, and at the same time increasing our footprint and our efforts on our financial business. So that is, in certain way, part of our plan, and it's part of the investment cycle in that country.

Regarding your question on Sodimac, Chile. Basically, we see an opportunity to improve on wholesale, particularly in the segment of small businesses. We are working on that with our B2B team. And in this quarter, in particular, it was also noticed in that part of the same-store sales and our margins were also affected by the performance of several categories, specifically, due to what there promotional, such as white goods and some of the electronics [stores going being] in Sodimac.

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Rodrigo Alcantara, UBS Investment Bank, Research Division - Associate Analyst [26]

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Okay. And these opportunities you see, would you say are like just price-related? I mean you need to be more promotional, product assortment or what -- in which areas do you see these opportunities of improvement?

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [27]

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There's an opportunity that it might be related to pricing. Most importantly is in the relationship with these customers and reengaging with them. It's more commercial efforts rather than just being more promotional or aggressive in terms of pricing.

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Operator [28]

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(Operator Instructions) Our next question is from Nicolas Larrain with JPMorgan.

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Nicolas Larrain, JP Morgan Chase & Co, Research Division - Research Analyst [29]

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Alejandro and Andrea, just a couple here. If you could update us on what's the exposure of imported items that you guys sell in the Falabella and Sodimac considering the sharp depreciation of the peso recently? If you could give us an updated sense on what's the -- what would be the impact.

And also more on the payment side, what is the latest on the new payment capabilities that you guys also want to launch along with CMR and the bank in order to enter into this payments ecosystem?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [30]

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Thank you, Nicolas, for your question. About the FX exposure, given the sharp depreciation that we've seen on the CLP, let me say a couple of things. First, even though we have $1.3 billion of debt in U.S. dollars, that's fully hedged, back to local currency here in Chile. So there's no exposure on that. And about [that] basically the inputs that we have for the products that we end up selling on our stores, we have a value-add risk model that basically sets a maximum exposure that we're willing to take, that's relatively small. And based on that, we were pretty much covered for a term of 3 to 4 months. And this is a moving target that we have on -- it's a rolling 3- to 4-month number that we have.

So the true impact for this that we have today is we're not going to have any issues for the next 3, 4 months. So Christmas shouldn't have a problem. Real question is if this level basically stabilizes and moves forward, it's going to be more complicated. But basically, we're starting to -- basically, from a commercial perspective, we're starting to basically negotiate with our suppliers. We've already, before this situation, this unrest came, we've already been shorter on our orders, in our import orders for the next year. We were running shorter than this year. So the exposure would be lower than what we had this one.

And the other thing that we always do, we keep some amount of local suppliers in order to be able to react. So it is -- it's going to be an ongoing concern. It's something that we're monitoring very closely. And because this is not the first time that happens, when we try to recall what happened in 2008 or in 2010 after the earthquake, we had a situation in which we also have a relatively sharp depreciation of the peso in a short period of time. And we basically handled it in the way in which we can basically adapt and eventually reduce the amount of imports and trying to see for some products, some local supply to work with.

When CLP starts going up, local supplying becomes more competitive, and you also have -- the time to market is shorter. So there's -- it's going to be a situation that we're going to be monitoring very closely and -- because it's hard to see what the trend is going to be. If you think, internationally, the U.S. dollar basically should be going down. But here, for the short term, uncertainty, it has depreciated basically sharply.

And your second question is related to digital wallet payment that we've basically been sharing with the market. We have a team that's working at full speed, developing a new product. We're basically, today, we're currently testing these features in a friends and family mode. We're expecting to deploy a full version of this. If we run, hopefully, towards the end of this year, and in the worst case it's going to be during the first quarter of 2020.

We think this is going to be very relevant. Keep in mind that our substantial and relevant client base and our retail store and alliances make this very attractive. So it's -- we think this is going to become a very important competitive advantage to scale up payment solution. And it has a potential to become one of the leading payment services in the region.

So we're running. And in case anyone of you is wondering, this unrest is not basically stopping the energy that we've put in this development. And hopefully, as I said before, hopefully, we're going to have this towards the end of this year and in worst case going to be during the first quarter of 2020.

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Operator [31]

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And our next question is from Antonio Gonzalez with Credit Suisse.

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [32]

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I just have two. The first one, I wanted to see if you can share with us some perspective, Alejandro, with -- you mentioned earlier, the 4% of your selling space has been closed for now. But I guess when you put this together with the limited hours of operation and, I guess, a depressed level of demand that we are seeing at the moment, can you share with us some perspective on whether you see a possibility of reducing the head count at the stores? If you could just share where we are at the moment in terms of sales versus last year? And whether you think you are very far away from you guys needing to adjust the head count levels? Or we're really far away from that situation?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [33]

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Thank you, Antonio, for your question. It's a very good question, but it's really complicated to come out with some light on that. We're basically making all the efforts as a company to go back to normal ways of working, and that implies basically taking care of our employees and taking care of our customers. Through this, during last week, we ended up working relatively normal hours with the stores. There's some degree of uncertainty still on the street. So it's really hard to come out with.

But what I can tell you is that in moments like this, it does pay to be conservative from a financial perspective as a company, like Falabella. So we have the financial strength, I would say, to go through this period better than a lot of our competitors. Not only because of the financial strength that we have, but also because of the operational capabilities that we have. So even though I do apologize that I'm not answering the question that you're asking straight because I cannot, it's really almost impossible.

But in the meantime, what we've done is basically taking care of everyone. We're trying to operate -- the stores are running as we're expecting to. There's a lot of energy, and there's a lot of commitment on the people in our stores that -- and the work that we've been doing with them very closely to support them. So it's -- hopefully, this is something that should go back to normal relatively soon. And we're going to be able to lever it, as I said before, on the operational capabilities that we have, specifically, logistically and the e-commerce to come out stronger than before, which, by the way, if you think what happened after the earthquake, it's basically a situation that happens. So we're monitoring the situation closely and keeping our, I would say, our sustainability and financial strength very, very robust so that we can basically have the best, I would say, [crux] of the situation.

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [34]

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Is there any chance you share with us, I guess, the order of magnitude, not really for modeling purposes, but more just for us to have a qualitative sense of what's going on? The level of same-store sales decline that you're seeing in Chile, are we seeing 10%, 20%, particularly in formats like department stores? Or what's the order of magnitude here?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [35]

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It's -- I'm going to probably come out with another -- this is not going to be a wishy-washy answer, but to this, the -- the hours that we are working in the stores are having a very positive performance. The problem that we have in here is that we are not opening as many hours as we would like to. And that all in comes out, as we speak, with a negative impact.

But it's hard to come out with a number because the performance that we're seeing, for example, in Tottus, in the stores that were open, has been very strong. Same thing in Sodimac. But then again -- and it's also something that's relatively strange because it's not -- there's not a common pattern because there are some stores that, I don't know, accidentally because some of the area in which they were less impacted, their performance is totally different to a store that's open in an area that was more impacted by the social unrest.

So -- but we can tell you that the minute we have some trend or something to share with the market, we will. As I said at the beginning of the call, we're still coming -- trying to come up with numbers on the impacts of this. And we would certainly would love to have more detail to give you, and the minute we have that, we will.

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Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [36]

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No, I understand that. Lastly, if I may, can you just share anecdotally, I presume, obviously, your level of purchases with, again, reduced hours and impacted demand, obviously, you must be on the more conservative side. And not just yourselves as a company, but I guess the industry should have a quite conservative approach towards purchases at the moment.

And also I just wanted to ask if you foresee a situation where SMEs, your partners, suppliers from whom you are purchasing domestically, do you see a situation where there's cash flow concerns and there might be a squeeze in this part of the value chain? Or you still see robust, let's say, peer of the supply chain across the SMEs with whom you partner?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [37]

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In this case, I really appreciate your question because it gives me the opportunity to -- SMEs are very -- which in case someone is not familiar, short and middle enterprises, what we've been doing is keeping a very close contact with them. We're talking on a daily basis with most of them. Towards the end of last month, the end of October, we ended up paying, not 30 days, we're paying on the same day basically to support their working capital requirements.

So far, we don't see a major impact to this. It's -- I don't have a crystal ball to see how this will look to the future, but part of what we're doing, and this is something that we mentioned at the beginning of this conference call, is that we're trying to support our major stakeholders, which is basically our employees, our customers, our suppliers on this channel. Basically the investment community we have in this conference call.

So if there's something that we can do to support them, we will certainly be up to the situation. We're seeing how it's behaving so far, the end of October. It was relative -- and this is something not only Falabella, there's also something goes in the line toward Mallplaza with the rent from the tenants. So which -- we're -- if you really believe in having a long-term view, like we do as a company, this company is as strong as the employees that we have, as the customer and also as the suppliers that we have. So we are close to them. And if there's something that's within our range and we can do something to support them, we will be there while the situation does not go back to normal.

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Operator [38]

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(Operator Instructions) Our next question is from Robert Zhang with DePrince, Race & Zollo.

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Robert Zhang;DePrince, Race & Zollo, Inc.;Senior Analyst, [39]

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I have just 2 quick questions. The first question, your online sales -- e-commerce sales that grew 28% year-over-year, while your retail sales overall has been flat. So does that mean the online sale came at -- totally at the expense of offline sales, meaning 100% cannibalization? And yes, that's my first question.

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [40]

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Thank you, Rob, for your question. It's -- there's certainly some degree of cannibalization. It's really hard today to come out with a specific number on that because what we're seeing is a customer that basically relates with us and with other retailers in a very, I would say, omnichannel way. So sometimes, they go to the stores; sometimes they want to buy click & collect.

A big portion of the online sales, which represent a big part of the -- also the growth that we see there is basically buying online, but picking in stores. So even though there's an impact in the -- as I said before, in the cannibalization, we're pretty sure that if we didn't have the stores that we have located where they are, and we would not have the degree of growth that we presented in the business online. And as I said before today, the customer is basically relating to you in different ways within a relatively short period of time. We see -- identify fully -- identify customers basically buying on the store and some in the same-day buying online. So it's more related to the type of product and the preferences of the customer. And that's why we -- part of this investment that we do online and building this ecosystem that we are doing today goes in the line to basically being able to serve the customer in every single way in which they would like to relate with us.

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Robert Zhang;DePrince, Race & Zollo, Inc.;Senior Analyst, [41]

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Understood. And second question. In the beginning of the call, you mentioned that on October the 19th, riot started on 18, and on 19th you closed all your stores. Did you close all the stores, meaning banks, retail, groceries or just part of the stores? If so, what percentage did you close on that day?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [42]

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Yes. Well, to be precise, the unrest started 18th. But 19th, we closed stores at 4:00 p.m. and I mentioned nationwide. And it's on the 20th that we basically closed everything because we were not -- this basically got everyone by surprise, and there were some risks that we were not willing to take. And at that point, the reaction was basically close everything.

And then after that it's like we've been saying, we started opening sequentially, as we were able to basically set the safety procedures required to open in a safely way to protect employees, customers and basically the physical assets of the company, the store, the installations and the inventory.

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Robert Zhang;DePrince, Race & Zollo, Inc.;Senior Analyst, [43]

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Can it still gradually open, reopening stores till now 95% are reopened?

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Alejandro González Dale, S.A.C.I. Falabella - Corporate CFO [44]

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Yes, yes.

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Operator [45]

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And this concludes our Q&A session. I will turn it back to management for any closing remarks.

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Andrea Gonzalez Bayon, S.A.C.I. Falabella - Head of IR [46]

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Thank you for participating in Falabella's Third Quarter 2019 Earnings Call. The Investor Relations team is available if you have any follow-up questions. Have a nice day.

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Operator [47]

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And thank you for participating in today's conference. This concludes the presentation. You may now disconnect.